All posts in category: Sector Strategy (47)

Simple Explanation

Thursday, November 15th, 2018

Industrials are weak in both equity and credit models

Weakness in US Industrials can often be a signal that we are close to a period of market disruption. That signal is flashing yellow, as are the signals from other equity regions such as the UK, the Eurozone and Japan. We have red flags on Industrials across all of our credit models. We don’t have a clear and obvious cause yet, but the simplest explanation could be that we are closer to a significant slowdown than consensus thinks.

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All Good Things Come to an End

Wednesday, October 17th, 2018

US Technology sector downgraded

The US Tech sector may bounce if Q3 earnings are good, but we think our downgrade is part of an important trend, not just a blip. In other regions, the sector has been downgraded to underweight within a few weeks of being downgraded to neutral. At the stock level, we have already cut most of our long positions between June and October and expect to cut some more in the near future.

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Lost in Translation

Wednesday, September 26th, 2018

China and the US disagree about more than trade

There is a fundamental conflict between the bearish sector stance of our Chinese equity sector model and the bullish positioning of the US model. We don’t think it is possible for these two sets of sector recommendations to remain unchanged without having an impact on each other or the rest of the global equity universe. On balance we think it is more likely that the US will come to resemble China, rather than the other way around.

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Top and Bottom Agree

Wednesday, September 19th, 2018

Stock-specific models show equities under pressure

Our new stock-specific models cover the US, UK and the Eurozone and they have an uncomfortable message regarding the outlook for global equities. We looked at eight companies in the US and the UK, whose profits are geared to global equity markets. Seven of them have a very low probability of beating their host index on a risk-adjusted basis, and their scores are lower than the Financials sector as a whole. Equity investors appear to believe that the outlook for equities is difficult and that agrees with our top-down models

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Midsummer Moderation

Wednesday, August 22nd, 2018

Time to reduce the beta of your equity portfolio

All four defensive sectors in the US have generated relative buy signals in the last three months and as a group they are starting to outperform the index. This may or may not be an indicator for the equity market as a whole; that is for the future to decide. Right now, investors should be reducing the beta of their equity portfolio, no matter what their macro-outlook. And the same applies to European portfolios as well

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Three Unrelated Ideas

Saturday, July 14th, 2018

Japanese Equities, US High Yield and Healthcare

Our models suggest that investors have decided to use Japanese rather than Eurozone Equities, as a way of funding their increased exposure to US Equities. US High Yield may be about to lose its #1 position in fixed income. Healthcare is about to be upgraded to overweight in the US and Europe. It is largely unaffected by the threat of a trade-war.

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Defensive Mindset

Wednesday, July 11th, 2018

The least bad alternative

The shift towards defensive equity sectors has clearly accelerated in the last three weeks. It has happened in every region and is led by the Utilities sector. The detail is less important than the big picture. Investors are worried about rising rates, rising oil prices and rising tariffs. They are buying defensives because of what they are not, rather than what they are.

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Lagging sectors and regions

Wednesday, May 30th, 2018

What does an underweight in both really mean?

This week we look at which equity sectors have historically been rated underweight when their region is also rated underweight. Causation is much harder to establish than for overweight sectors in overweight regions. The main lesson is that sector selection may not compensate for being in the wrong region in a bull market or the wrong asset class in a bear market.

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One of Us Is Wrong

Wednesday, March 14th, 2018

Defensive underweight contradicts top-down view

Our models show a clear contradiction between the neutral recommendation for European equities vs fixed income and the all-time record underweight in defensives, which we discussed two weeks ago. There is normally a good correlation between a bearish view on equities and defensives, but over the last year this has turned negative in Europe. The US and Japan do not share this problem. It’s one that Europe needs to resolve.

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Records Are There to Be Broken

Wednesday, February 28th, 2018

Defensive underweight lasts a long time already

Underweight Defensives is such a consensus call that nobody really bothers to argue the reasons for it any longer. In Europe, our underweight position on Telecom, Utilities, Staples and Healthcare is the biggest it has ever been. The persistence of this underweight is well on the way to challenging the record for any combination of sectors. Consensus is right for now, but everything changes in the end.

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